The Road To Returns Are Paved with Platinum: A Guide to Platinum Investing

Friday, 11 June, 2021

When it comes to investing in precious metals most people will automatically think of gold, and for good reason. Gold has long been used as an asset that offers wealth, security and it is often used to hedge against risk. Most recently it has done well in the wake of the Coronavirus pandemic that saw stock markets become highly volatile. As such investors fled in their droves to “safer” asset classes like gold. 

© Photo by Tom Fisk

However, gold is not the only precious metal on the block worth investing in. Silver is another option, but so is platinum. Recently the team at Axerian met up with industry expert David Crawford. He made a compelling case for choosing platinum as a suitable investment for a raft of investors. 

What is platinum investing?

Platinum investing takes a number of different forms. The result is that investors can find a means that helps address their needs and requirements in relation to their circumstances and risk profile. 

Perhaps the easiest way to invest in platinum is to buy the physical asset. It is possible to buy it in coin or bar form from a provider. Those coins or bars are produced at institutions such as the US mint, the Royal Mint or the Canadian Mint. 

The market for buying the physical asset in the UK is currently much smaller than many other places in the world. Germany has the largest bullion market in Europe at present, while the US and Japan also have bigger markets too. Recently, however, those in the UK that do want to purchase platinum have been able to do so at CostCo. Something particularly useful if they did not want to approach a dealer like Baird and Co for example. 

Investors can then either choose to keep the asset themselves in their own home or store it securely elsewhere. For those that are happy to store their platinum investment elsewhere, there are also a number of different methods available to them when making their purchase. 

Firstly, by using a provider, they can choose to buy the physical asset through a pool. In essence this means the investor buys a fraction of a bar. In fact it can mean they buy several fractions of several different bars of platinum. But for that reason they cannot touch the physical asset which they actually own. It therefore becomes similar to a financial paper product, as they receive monthly statements as to how much their holdings are worth. It is otherwise known as an unallocated way of buying platinum. For those that like to own physical assets this method of investing in platinum may not be suitable. But it is one of the more cost-effective ways of buying precious metals. 

There is, however, an allocated method of buying platinum. Doing so provides investors with purchasing a physical asset and having rights to that specific asset. It is a hybrid between owning the physical asset to store at home and the unallocated storage of platinum. Allocated storage means you own the physical asset – as delineated by a serial number – but it is stored elsewhere in a provider’s secure location. Those that choose this method are often far more comfortable with the financial ecosystem. Yet they are inclined towards the investment ethos behind platinum being a physical asset – unlike buying stocks and shares for example. There are also practical reasons for buying platinum in this way: there is no need for the insurance required when storing the precious metal at home.  

For individuals who are not concerned with the physical, or tangible side, of investing in platinum, but simply like the investment outlook for the metal, there is another option. This comes in the form of investing in Exchange Traded Funds (ETFs) that track the underlying price of the metal on the London Bullion Market Association (LBMA) or the London Metal Exchange (LME). These funds are traded like a stock or share and are increasing in number. For that reason they are becoming more liquid and, as a result, easier to trade. 

ETFs make it possible to simply buy a share in an ETF which is akin to investing in a tenth of an ounce of platinum. While an investor will never own the physical platinum, it can provide a more cost effective and simple way of investing in the metal. Plus, as the ETFs are traded through brokers, there is that little bit more regulation that some may find more comforting than when buying the physical asset. While there is a certain amount of oversight provided by the LME when purchasing coins or bars, it is still deemed as unregulated.

Finally, it is possible to invest in platinum by way of purchasing shares in platinum mining companies. The majority of platinum investing occurs in South Africa and the companies that mine there are: 

However, there are two more companies that mine elsewhere: Norilsk in Russia and StillWater in the US. The latter is, however, part of Sibanye StillWater with the obvious strong links to mining in South Africa. The big benefits of investing in the equities of these companies are that they are all stock exchange listed companies, making it a regulated way of investing in platinum that is far more liquid. Plus investing in shares is simply a notion that many investors may understand better than investing in the physical asset of platinum. 

That being said, there are downsides to investing in platinum through equities rather than the actual metal. The idea of valuation has a big part to play in how successful an investment is. A mining company’s valuation will not be solely tied to the price of platinum. Factors such as how they run operationally and how successful their individual mining methods are will have a big impact on both the company’s share price, and the ability for that price to increase. 

What are the advantages of investing in platinum?

The advantages of investing in platinum can add up to an enticing investment case – though obviously this should always be taken into consideration with regards to your own individual circumstances. Every investment will come with risks. 

Perhaps the most appealing idea behind investing in platinum is that it is a finite resource. It is only mined in a few countries. Plus, building a mine to source it takes about 10 years to complete. The barriers to entry are therefore high, meaning that the scarcity of the metal looks set to continue. To put that into perspective, only 6 cubic meters of platinum have ever been mined in its entire history. 

On the flip side, buyers of the metal would argue that the demand for platinum looks set to rise because platinum is not just used as a metal in jewellery. It has a huge range of purposes in industry. It helps in oil refining, it is used in many different ways in the medical sector and it is widely used in the automotive industry with fuel cells. 

In the majority of its current usages, it cannot be replaced with another material. For example, while synthetic metals can be used to make a pacemaker for someone’s heart, it is not nearly as durable as a pacemaker made with platinum. A platinum pacemaker will last for 20-30 years while a synthetic one will last around 3. 

In the oil industry, it is used in refining thanks to its ability to withstand high temperatures. Again, this is something that a synthetic metal cannot compare with. In fuel cells, while diesel and petrol cars will largely be replaced over the next few decades, the fuel cells within them will still be used. This is because fuel cells may be used with synthetic fuels or even in a hydrogen fuel cell. Both of which will not emit pollutants, like petrol or diesel cars, and thus should stay in demand.

The demand for all the above products and more looks set to rise too. Thanks to population dynamics of the globe and the fact that the world’s population will definitely increase, the call for products that use platinum will too. More people will want cars and more people will want medical procedures: both of which require platinum based products. 

Additionally, an important advantage for platinum investing is the idea of responsible investing. Those that buy the metal, an ETF or an equity can be reasonably comfortable that their investment adheres to highly stringent ethical and moral viewpoints. Due to being mined primarily in South Africa through stable and reputable companies, investors can take solace in the fact that platinum has not been sources through the misappropriation of chemicals or through artisanal mining that may go towards funding armed militias. Gold, however, runs this risk elsewhere in Africa. 

Finally, financially speaking, platinum is simply a good maintainer of wealth. As it is a finite resource, it cannot be diluted in the way that stocks can through cash injections or stock issuance. Plus, it is not correlated with the majority of the financial ecosystem, meaning that in times of recession it has, historically, managed to fare well. 

What are the disadvantages of investing in platinum

Of course, as with every investment, there will always be risks and disadvantages. When it comes to platinum investing, one of the main disadvantages that may deter investors is the limited range of products available. In short, the platinum market is small. It therefore provides investors with less market makers and less options or opportunities. 

However, steps are being taken to increase the product range in the UK thanks to the World Platinum Investment Council and several initiatives they have implemented. There has been an exponential increase in the number of bars, coins and exchange traded products that investors can purchase. As a result the platinum market is becoming more competitive and, therefore, a safer and more secure environment, even if it is still a relatively new investment asset. 

Another disadvantage though is the comparative lack of research that goes into the platinum investment sphere. This is made worse by the fact it is a comparatively niche market. However, the costs surrounding platinum production have recently become more competitive with gold than ever before, despite being a metal that is much harder to mine. As a result, platinum’s popularity should rise and research into it should increase.

Some naysayers may also look at the impending proliferation of electric cars as a negative aspect to the investment case for platinum, given its usage in combustion engines. However electric cars, though incredibly important for reducing the world’s carbon footprint, cannot be the only answer. There simply is not a global electric grid large enough to sustain the entire population using an electric car. The answer will need to be a mix of electric cars and cars that require platinum due to being powered by the aforementioned hydrogen fuel cells and combustion engines which use biofuels. 

Finally, it is important to mention how the size of the platinum market can expose investors to large price fluctuations. When the price is volatile, it is difficult to buy or sell the metal as there is not a very liquid market in it. However as the range of products grows, and the market becomes larger, liquidity will improve. This will have the effect of minimising the risk that volatility can pose. 

Investing in platinum – key takeaways

The investment case for investing in platinum makes for some pretty compelling reading. While no investment is ever without its risks, platinum has two huge advantages that are economically hard to dismiss. Being a finite resource means that when the limited supply is coupled with the inevitable increase in demand, thanks to a growing global population, platinum may make a fantastic addition to any portfolio. It also provides great diversification properties for other investments and it has conclusively been seen to be a great storer of wealth. 

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